Bank Abetted $35M Ponzi, Investors Say

KANSAS CITY, Mo. (CN) – A “willfully blind” Hillcrest Bank allowed a developer to run a $35 million Ponzi scheme, jilted investors claim in Jackson County Court. The Quintero Community Association and five members or owners say they were victimized by Gary McClung, and that Hillcrest looked the other way as McClung ran the scheme through Hillcrest accounts.

They claim that in 2004, McClung “personally, and as representative of Quintero Golf & Country Club, began negotiating with Hillcrest Bank of Kansas City … to procure a loan to complete the in-progress and contemplated improvements of the Quintero Community in Arizona.” In a complicated series of deals, the initial loan amount “was set at $31,134,000,” but “there are unpaid construction vendors totaling approximately $5.5M[illion], many with judgments or liens against the property,” according to the complaint. A receiver took over Quintero in October 2009. The plaintiffs say they loaned $35 million to one or more Quintero entities, and that “Gary McClung, using the Quintero entities, ran a phony investment plan or Ponzi scheme in which monies paid by later investors were used to pay artificially high returns to the initial investors, with the goal or attracting more investors.” He did this by “check kiting” and other schemes, the plaintiffs say. “Hillcrest Bank … operated with imprudent lending and collection practices and inadequate capital protection,” the complaint states. “Hillcrest Bank was aware of the Ponzi Scheme by Quintero Entities and Gary McClung. When they were made, Hillcrest Bank was aware of the false statements of fact being made by Gary McClung to the Quintero Entity investors including the plaintiffs. Hillcrest Bank allowed Gary McClung or did not inform the investors such as the plaintiff of the falsehoods made by Quintero Entities and Gary McClung. … “Hillcrest knew or should have known that the representation that the improvements had been complete was materially and substantially false.” The plaintiffs seek costs and damages for breach of fiduciary duty, conspiracy, aiding and abetting and fraud by silence. They are represented by Linus Baker of Stilwell, Kan.